Slide 10 of 15
Notes:
The recent surge in spot prices at the Henry Hub are well above a typical range for 1998-1999 (in this context, defined as the average, +/- 2 standard deviations). Past price surges have been of short duration. The possibility of a downward price adjustment before the end of next winter is a source of considerable risk for storage operators who acquire gas at recent elevated prices.
Storage levels in the Lower 48 States were 7.5 percent below the 5-year average (1995-1999) by mid-August (August 11), although the differential is only 6.4 percent in the East, which depends most heavily on storage to meet peak demand. Low storage levels are attributable, at least in part, to poor price incentives: high current prices combined with only small price increases expected by the winter peak. To see this, consider the relatively small differential between prevailing spot prices and NYMEX prices for winter deliveries, such as in December. The differentials for this time last year were more than $0.20/MMBtu – the average for most weeks in August 2000 has been from $0.10-$0.14 /MMBtu.
